Joining a growing list of tenants disuaded from Midtown South because of the neighborhood’s rising rental rates and scare availability, M5 Networks has signed a lease to relocate to 1385 Broadway.
The company will take 23,000 square feet, the 435,000-square-foot building’s entire seventh floor, where asking rents are in the $40s per square foot. M5 will be moving from 245 West 17th Street in Chelsea, where it had about 14,000 square feet.
Bill Peters, an executive at Jones Lang LaSalle who handled the lease for M5 with colleague Sean Black, said the company chose to do the deal in order to receive better economics, savings he said it intended pour into its office installation.
“They wanted to make the space special so instead of putting money towards a high rent, they wanted to create something that would benefit and attract employees,” Mr. Peters said. “They’re going to have some nice break rooms and they will put extra effort into the buildout of the kitchen areas.”
M5 Networks, a cloud computing firm that creates phone systems, is part of growing industry of tech companies that have found the city a place to thrive because of its talented workforce and proximity to clients, funding partners and peers. When tech giant Google took space at 111 Eighth Avenue (and eventually bought the building for $2 billion last year), Midtown South became christened as Manhattan’s own Silicon Alley.
Since then, tenants, especially those that employ a youthful workforce, have come to regard the area’s loft-like office spaces and laundry list of options for night life, restaurants and other hip attractions like the High Line, as an essential selling point in recruiting new hires.
The neighborhood’s popularity has pushed vacancy rates there under five percent, the lowest level of any major office market in the country, which has created an inhospitable leasing market.
“There’s just not that many options to choose from and landlords aren’t willing to negotiate on deals because they have such an upper hand,” Mr. Peters said.
If M5’s move is not a whole-hearted plunge into Midtown, it is a foray to a sub-district that is emerging as Midtown and Midtown South’s in-between, an area generally defined as just south of Bryant Park. Mr. Peters said that 1385 Broadway, which is located on the corner of 38th Street, may not have the same kind of neighborhood amenities as a Midtown South location but is close to the park and convenient to the city’s major transit hubs Penn Station and Grand Central Terminal.
“It definitely has a different vibe but they’re not as far away as I think they thought they would have to be,” Mr. Peters said. “The Ace Hotel is not that far away and people love Bryant Park, it’s a great amenity.”
M5’s lease follows a similar move in recent weeks by Vox Media, which signed a deal for nearly 17,000 square feet at 104 West 40th Street in June.
In a conversation in with The Commercial Observer, the building’s leasing agents, Paul Amrich and Neil King, who are both executives at CBRE, said the tenant had been initially set on going to Midtown South but was eventually drawn to the building by its compelling economics.
“As you get north of 42nd Street I think you get a north/south barrier and the tenants that really wanted to be in Midtown South will be reluctant to cross it,” Mr. Amrich told The Commercial Obsever then. “But generally we think of Midtown South these days as anything south of 34th Street and so at 40th Street, we’re only a few blocks outside of that and so it’s not a big step for a tenant.”